Why so simple?

[Demosthenes]

'An Easy Way to Make Money Quickly'

Tax Cheater Tells Senate Panel That He Can't Understand Why the IRS Makes Ripping Off the Treasury So Simple
By JAKE TAPPER

April 12, 2007 — - Members of the Senate Finance Committee have long suspected that the Justice Department fought so hard to keep convicted felon Evangelos Soukas from testifying today about tax fraud because it feared Soukas would illustrate how easy it is for anyone with the most rudimentary intelligence to game the system.

Based on Soukas' testimony and the visible frustration of IRS Commissioner Mark Everson, the Justice Department had every reason to be worried.

Soukas, 29, who bilked the IRS out of $43,600 in fraudulent tax rebates, told the senators that "it's not hard at all" to hijack someone's personal information.

And from his rough-hewn bearing -- Soukas is hardly an M.I.T. doctoral candidate -- it wasn't hard to believe him.

"They didn't recover none of the funds," said Soukas, wearing a tweed sports jacket over his prison orange jumpsuit. The stolen money was spent on numerous trips abroad, he testified.

From 2000 through 2005, Soukas was able to get the IRS to send him rebates using nothing more than the names, social security numbers and dates of birth of other taxpayers, which were obtained from a partner in crime, an entry level employee of a cell phone company. It took approximately two hours per return, Soukas said, incredulous that the IRS system didn't require more than basic information.

"What I don't understand is why doesn't the IRS have some type of security measure by issuing out a PIN number or even using a mother's maiden name when filing electronically or even calling in the call center," Soukas said. "There should be some type of extra measure to safeguard the people's tax records in my opinion."

"Not even a mother's maiden name!" he said. "Everyone has a mother's maiden name or a password."

All of these fraudulent refunds for other taxpayers went into Soukas' personal bank account, which stunned the ranking Republican on the committee, Sen. Chuck Grassley of Iowa.

"If Chuck Grassley got a refund and it was going to be deposited in Jim Smith's account, wouldn't that raise a red flag?" Grassley asked.

"People have joint accounts," said a flummoxed Everson. "I'm not sure what the protocol is."

Everson was not as impressed with Soukas' crime as much as the senators, noting the relatively small amount of money Soukas stole. "That case would frankly not be accepted by many U.S. attorneys," he said, under intense questioning from committee chairman Sen. Max Baucus, D-Montana. "In most districts across the country you would not get prosecuted for $40,000 in a refund crime."

Everson said putting more safeguards on the IRS rebate process would hurt "in some instances poor people who were entitled to the refund…If you stop everything that you think is questionable, then you will be damaging the interests of some legitimate taxpayers."

"In all due respect, that is not a satisfactory response," Baucus said.

Soukas was ultimately arrested in January 2005 not for the fraudulent tax refunds, but for more than a million dollars in other kinds of fraud and identity theft. In June of that year he pleaded guilty, and he is currently serving seven-and-a-half years in prison for wire fraud, mail fraud, fraudulent use of another person's means of identification and identity theft.

Soukas said he was first inspired to conduct his criminal acts in March 2000, when he stumbled upon an H&R Block advertisement on the Internet promising users, "Receive your tax refund within days of filing!"

"For a criminal already on the run from the FBI, this was a easy way to make money quickly," Soukas said. First Soukas filed a tax return for himself, "making up a W-2 entry on the Web site from which I had copied from my mother's tax return. It took me a couple of hours to work it out to make the tax return look legitimate."

It was simple, he said. Obstacles were easily overcome. When the site required a nine-digit tax code for an employer, Soukas obtained one from a past employer's human resources office. Soon enough he was using the H&R Block Web site to file with the IRS a refund request of $3,614.00. He also received an anticipation loan for that amount, receiving the money in his checking account within days.

"In only a few hours of work I had made $3,614.00," Soukas said. "My first thoughts were that this is a really easy way to get money and if I wanted to I would be able to hijack other people's identity and never get caught if I were to take the necessary precautions."

Soukas soon went into overdrive and quickly started filing false claims to the IRS through numerous Web sites with other people's personal information that he had used on his past crimes of identity theft. "I was successful on many attempts that netted me $43,600 in 2001, by simply doing the same thing as the year before but using hijacked identities," Soukas said.

Soukas even used the IRS call center to check on the status of the false returns he had placed. "Most of the time the automated service would answer my request by entering in the social security number and the exact amount of the refund and then will tell me the status of the refund," Soukas said.

In 2003, Soukas testified that an IRS agent tracked him down and expressed shock that he had no professional training in tax preparation.

"I just have a high school diploma and never took any training in tax preparation," Soukas said. The agent found that hard to believe, he said, and called him a genius. "It does not take a rocket scientist to do what I had done. It doesn't take an Einstein to file false tax claims, it is actually pretty easy. If I really wanted to continue in this field I could have safeguarded my true identity and never been caught," said Soukas.

Everson disputed this. "What I don't like to see is the impression that the system is rife with identity theft," the commissioner said. "I don't want anybody to believe that there's something pervasive in the tax system that makes this possible."

[hartley]

Luckily, it can't be done for quite that flagrant an amount anymore.

I don't remember the exact number, but the IRS starts rejecting e-file returns after 3 or 4 direct deposits to that same account. And any single return with an amount that large will be fishy enough to be frozen and investigated.

It still is absurdly easy to get a few grand if you know what you're doing, though. If you use the paper signature form method of e-filing, all you need is name, date of birth, SSN, and a valid EIN for the fake W-2. We even release the refund without receiving the signature form in the mail.

[Quixote]

The problem starts with large tax refunds. The public likes large tax refunds. I spoke a few weeks ago with a guy whose 2006 federal refund was a reasonable amount. He asked me if he could increase his refund next year by having more withheld from his pay. That attitude is not unusual. The government likes large tax refunds. People who owe tax or are expecting small refunds are less motivated to file returns. I have talked to people who couldn't be bothered to file a 1040EZ for less than a $500 refund. Paid preparers like large tax refunds. They base their fees for low income taxpayers on the size of the refund. They even base their electronic filing fees on the size of the refund despite regulations prohibiting that practice. As long as the electronic filer is not too blatent about it, the IRS has too much time and political capital invested in electronic filing to gum things up by actually enforcing the elf regulations.

Even if people wanted more take home pay and smaller refunds, they don't always have control over the size of their refunds. Only half of the EITC can be shifted from the refund to take home pay via advanced EITC (AEIC). The procedure for doing that is not well publicized. Some IRS public contact employees are told by their superiors to discourage taxpayers from applying to their employers for AEIC. The chilld tax credit, at $1000 per child, can create a sizable refund even if the taxpayer has no income tax withheld.

A sizable portion of the public demands instant gratification, e.g., quick, preferably instantaneous, tax refunds. The IRS exploits that demand to outsource its data entry. Most data entry is now done by electronic filers. The cost is paid by the taxpayers. The outsourcing has saved the government so many staff years, it was able to shut down a service center last year. No wonder Everson isn't concerned about $43,600. That's a bit more than a staff year, but not much.